Learn how direct and 60-day retirement-plan rollovers work, which distributions qualify, how withholding applies, and what records to keep.
A retirement-plan rollover moves an eligible distribution from one retirement account or plan to another eligible retirement arrangement while preserving tax-deferred or Roth treatment. A properly completed pretax-to-pretax rollover generally does not create current taxable income. Moving pretax money to a Roth account is instead a taxable Roth conversion to the extent of untaxed value.
A rollover changes where retirement assets are held; it is not a deduction and does not erase the money's tax character.
With a direct rollover, an employer plan pays the eligible amount directly to the receiving IRA or plan. With an IRA trustee-to-trustee transfer, one IRA custodian sends assets directly to another. The taxpayer does not take possession of the funds.
These methods generally avoid the 60-day redeposit deadline and the mandatory 20% federal withholding that ordinarily applies when an eligible employer-plan rollover distribution is paid to the participant. A check made payable to the receiving trustee for the participant's benefit can qualify as a direct rollover even if the participant delivers it.
Example: Jordan directs a former employer's plan to send $60,000 of pretax money to a traditional IRA. If the distribution is eligible and completed directly, Jordan generally reports the Form 1099-R but has no current taxable income from the rollover.
When an eligible distribution is paid to the taxpayer, the taxpayer generally has 60 days from receipt to contribute the eligible amount to another qualifying plan or IRA. Employer plans generally withhold 20% from an eligible rollover distribution paid to the participant.
If Jordan requests a $60,000 plan distribution, the plan may send $48,000 and withhold $12,000. To roll over the full $60,000, Jordan generally must deposit the $48,000 received plus $12,000 from other funds within 60 days. If only $48,000 is deposited, the withheld $12,000 is generally taxable and may face the early-distribution additional tax; the withholding is claimed as a tax payment on the return.
The IRS can waive the 60-day deadline in certain circumstances through automatic waiver, self-certification, or a private letter ruling. Self-certification is not an automatic determination that the waiver requirements were satisfied.
An individual generally may make only one IRA-to-IRA 60-day rollover during any 12-month period across all traditional and Roth IRAs. The rule is measured from the date the taxpayer receives a distribution, not by calendar year.
The limit generally does not apply to trustee-to-trustee transfers, rollovers from employer plans to IRAs, rollovers from IRAs to plans, plan-to-plan rollovers, or conversions to Roth IRAs. A second prohibited 60-day IRA rollover can be taxable and treated as an excess contribution in the receiving IRA.
Not every distribution is eligible. Common ineligible amounts include:
The destination matters. Pretax qualified-plan assets can generally roll to a traditional IRA or eligible plan that accepts them. Designated Roth assets generally move to another designated Roth account or Roth IRA. Roth IRA assets cannot roll into a traditional IRA, SIMPLE IRA, or employer plan.
After-tax plan contributions require careful allocation. When one distribution is sent to multiple destinations at the same time, federal guidance can permit pretax amounts to move to a traditional IRA or plan and after-tax amounts to a Roth IRA. Records must distinguish basis from earnings.
During the first two years of SIMPLE IRA participation, tax-free movement generally can occur only to another SIMPLE IRA. After that period, broader eligible rollovers may be available.
Nonspouse beneficiaries generally use direct trustee-to-trustee movement to an inherited IRA and cannot treat inherited funds as their own rollover contribution. Surviving spouses have additional options, but age, RMD timing, and beneficiary rules affect the best route.
A plan loan offset can sometimes receive an extended rollover deadline, but an ordinary deemed distribution and a qualified plan loan offset are not interchangeable. Review the Form 1099-R code and plan records.
The distributing institution generally issues Form 1099-R even for a nontaxable rollover. The receiving IRA generally reports the rollover on Form 5498. Form 1040 commonly shows the gross distribution and the taxable amount, with "rollover" indicated under current instructions.
Keep plan statements, distribution election forms, checks, wire confirmations, deposit dates, Forms 1099-R and 5498, after-tax basis records, and correspondence about any late-rollover waiver. Do not rely only on the receiving account balance.
California generally follows federal rollover treatment, but different California basis or nonconformity can change the state result. A California resident generally reports taxable retirement distributions regardless of the payer's location. Special transactions, including some 529-to-Roth-IRA rollovers, require separate California review.
Heath Income Tax can help reconcile a rollover, basis, withholding, and Form 1099-R reporting before an avoidable distribution becomes taxable.
Is a direct rollover taxable?
A qualifying pretax-to-pretax direct rollover generally is not currently taxable. Pretax money directed to a Roth account is generally taxable as a conversion.
Does every rollover have a 60-day deadline?
No. The deadline generally applies when the taxpayer receives the distribution. Direct rollovers and trustee-to-trustee transfers avoid that ordinary redeposit rule.
Can I roll over a required minimum distribution?
No. An RMD is not an eligible rollover distribution and generally must be taken before other amounts are rolled over.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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